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Life Insurance Assets Obtained After Bankruptcy

I live in Wisconsin. My spouse had a failed general contractor business in 2006 (LLC) which eventually led to filing a personal chapter 7 jointly (early 2007). Two creditors filed appeals (Theft by contractor), we were unable to afford lawyer fees to defend ourselves having just paid every penny of our remaining savings+ to file chpt 7. Both plaintiffs were therefore awarded default judgements which were then trebeled amounting to nearly $500,000. It may as well be 5 million. But that is not the issue.

Sadly, our 20 year old son chose to end his life 10 weeks ago and I have two small life insurance policies totaling 15k. If I collect this money it would do nothing to reduce our debt, which most likely will never be able to be paid in full.

If I collect this money can it be seized? If yes, how much of it? Should I wait it out and collect several years from now and pay the interest taxes, or leave it to my estate (I have a daughter)?

No one seems to know the answers to these questions. Yet I find it hard to accept the idea of "giving" it to individuals that made some rather inflated and partially false claims. It does not seem a just trade.

Re: Life Insurance Assets Obtained After Bankruptcy

You said in your first post you filed bk early 2007. If Oct. 2006 (as per your 2nd post) is when you filed for bk & since your son died 6-2007, the proceeds will not become part of the bk estate & you do not need to inform trustee.

re outstanding judgments - this is how life ins. is treated in Wi:
Wisconsin Life Insurance
Life insurance proceeds are exempt to the extent it is reasonably necessary for the support of the debtor.. [815.18(3)(i)(a)]
Statute

Life Insurance: $150,000 of cash value for a life insurance policy or annuity is exempt. However, if the policy is less than 2 years old, only $4,000 of the cash value is exempt.
815.18(3)(f) Life insurance and annuities.
2. Except as provided in subd. 3. and par. (j), any unmatured life insurance or annuity contract owned by the debtor and insuring the debtor, the debtor's dependent, or an individual of whom the debtor is a dependent, other than a credit life insurance contract, and the debtor's aggregate interest, not to exceed $150,000 in value, in any accrued dividends, interest, or loan value of all unmatured life insurance or annuity contracts owned by the debtor and insuring the debtor, the debtor's dependent, or an individual of whom the debtor is a dependent.

815.18(3)(f)3.a.
a. If the life insurance or annuity contract was issued less than 24 months before the applicable date, the exemption under this paragraph may not exceed $4,000.

815.18(3)(f)3.b.
b. If the life insurance or annuity contract was issued at least 24 months but funded less than 24 months before the applicable date, the exemption under this paragraph is limited to the value of the contract the day before the first funding that occurred less than 24 months before the applicable date and the lesser of either the difference between the value of the contract the day before the first funding that occurred less than 24 months before the applicable date and the value of the contract on the applicable date or $4,000.

Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around.

Re: Life Insurance Assets Obtained After Bankruptcy

Betty, I'm confused about what you posted. This policy has "matured". It was my understanding that any money received (like the proceeds from this policy) within 180 after the debt has been discharged must be reported to the trustee. Thus far, I can't tell if the BK has been discharged.

Re: Life Insurance Assets Obtained After Bankruptcy

My info says you have to report the proceeds to the trustee if received within 180 after the filing date. (not date of discharge) This was in a law book. It also said if you receive property in a divorce settlement within 180 after filing, the property can be used to pay creditors & to wait 180 days after filing for bk (doesn't have to be discharged) & then filing for divorce.
I found this on a website: (says about the same thing)--Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.
However; if you receive a large amt. of money (ie by inheritance or life ins. proceeds) after 180 days of filing but before the bk is discharged, it is recommended you notify the trustee.

farmgirlnow - were the judgments included when you filed for bankruptcy?

Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around.

Re: Life Insurance Assets Obtained After Bankruptcy

Thank you. I apologize for the confusion. We filed BK 10-16-06, it was discharged Feb 8, 2007. The judgements were granted as appeals to the BK. They were exempted (?) from discharge, hyped up and trebled.

The life insurance policy's were issued less than 24 months before his death (when I began new employment). If I understand correctly, this means that only $4000 of the $15,000 is protected from the judgements.

I am not having garnishment thus far and no one has contacted us about arrangements or current financial holdings etc (of which currently there are none). Must we report this money to the court?

Re: Life Insurance Assets Obtained After Bankruptcy

Most life ins. policies have a provision (normally two years) where they will not pay the policy proceeds (face amount of the policy) if the insured commits suicide within the first two years of the policy's effective date. (policy is void) You may want to verify if the policies on your son have any type of suicide clause. Many cos. will refund any premiums paid during the time the policy was in force even though they will not pay the face amount.

Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around.

Re: Life Insurance Assets Obtained After Bankruptcy

Quoting farmgirlnow

Thank you. I apologize for the confusion. We filed BK 10-16-06, it was discharged Feb 8, 2007. The judgements were granted as appeals to the BK. They were exempted (?) from discharge, hyped up and trebled.

The life insurance policy's were issued less than 24 months before his death (when I began new employment). If I understand correctly, this means that only $4000 of the $15,000 is protected from the judgements.

I am not having garnishment thus far and no one has contacted us about arrangements or current financial holdings etc (of which currently there are none). Must we report this money to the court?

I truly am grateful for your assitance.

I'm not sure that Betty or I know the answer. However, a single phone call with get your question answered. The trustee is NOT going to break the law by telling you YES, when the answer is NO. Just call and ask.

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